US concerns drag domestic bourses into red

Mumbai, Aug 12: US sub-prime mortgage woes had a profound negative effect on domestic bourses last week as the 30-share Bombay Stock Exchange (BSE) Sensex lost 270.15 points, or 1.78 per cent, to settle weaker at 14,868.25 and the National Stock Exchange (NSE) S&P CNX Nifty lost 68.20 points, or 1.5 per cent, to settle at 4,333.35.

''Sub-prime mortgage implies the credit extended to less-credit worthy individuals. The panic on Wall Street has not only affected local markets, but also almost all global indices,'' market analysts explained and added that the BSE Small-Cap index has however, outperformed the market gaining 12.59 points or 0.16 per cent to settle at 7,904.13 last week.

At the beginning of the week, weakness in Asian stocks pulled the Sensex down by 235 points on Monday. Nevertheless, the market came sharply off lower level from an intra-day 433 points fall. Asian stock markets slumped after downbeat US economic data, including the influential non-farm payrolls report, adding to the fears of the US sub-prime mortgage crisis.

The market recovered the next day amid mixed Asian markets.

However, it came off higher level. Sensex rose 30 points. It had risen as much as 239 points at one point of time during the day.

The market surged on Wednesday tracking a rally across global markets. Information technology (IT) stocks led the rally as rupee eased against the US dollar after the Government on Tuesday tightened overseas borrowing norms in a bid to check rupee's rise.

Stocks rose across the globe after the US Federal Reserve's positive outlook for the US economy helped soothe concerns about a global credit squeeze arising from US sub-prime mortgage woes.

However, the market lost ground on Thursday in what was a complete reversal of trend during the day. Holding firm till afternoon trade, the market lost ground later following the weak opening of European markets. The Sensex lost 208 points.

European shares slipped as BNP Paribas suspended redemptions from three funds citing problems in US sub-prime mortgages. The news came just at a time when worries about global credit problems arising from US sub-prime mortgatge woes appeared to be easing.

The market lost further ground on the last day of trading for the week, as markets fell across the globe. The Sensex lost 232 points on Friday. Yet, it made a strong rebound from an intra-day 529 points fall.

IT shares surged on Wednesday, as the rupee weakened against the US Dollar after the Government on Tuesday tightened overseas borrowing norms. Investor sentiment on the tech stocks have been sluggish in the last few months mainly because of the strong rupee.

The rupee has been one of the best performers among Asian currencies in this calendar year so far, experts pointed out.

Bank stocks witnessed alternate bouts of buying and selling despite the view that Indian Banks are unlikely to be impacted by US sub-prime mortgage defaults. Following the sub-prime loan problem, spreads of all credit default swaps have gone up which means their prices have gone down. Indian Banks will, therefore, have to make higher provisions for losses on these swaps, when they mark to market their investments at the end of the current quarter.

But these will be marginal compared to the size of their balance sheet, bankers explained and pointed out that the Banking sector is expected to benefit from tighter overseas borrowing norms announced by the Government on Tuesday, as companies looking to raise money abroad now have to turn to domestic Banks for credit.

BSE has revised free-float adjustment factor of four constituents of BSE Sensex. It has raised the free-float adjustment factor of Maruti Udyog to 0.45 from 0.4. It has cut free-float adjustment factor of Bajaj Auto to 0.65 from 0.7 and that of Hindalco to 0.7 per cent from 0.75 per cent. It has cut free-float adjustment factor of Ambuja cement to 0.65 per cent from 0.7 per cent. The revised free-float factors would come into effect from tomorrow.

''free-float adjustment factor is used for calculating a scrip's weightage in the Sensex. The free-float of a listed security is the proportion of shares available for purchase in the market by investors. In principle, it is the part of shares not held by strategic shareholders or promoters,'' market pundits explained.

A Securities Exchange Board of India (SEBI) committee on launch of dedicated infrastructure funds (DIFs) has suggested that the proposed DIFs should operate as a closed-ended scheme with a maturity period of seven years. The committee has also suggested listing options for DIFs to provide liquidity to investors in the fund. The committee, which submitted its report on Monday also suggested that retail investors investing in DIFs be given tax incentives. The committee has, however, added that such tax benefits should be available only to the original investors.

India's industrial production rose an annual 9.8 per cent in June, lower than the downwardly revised annual growth of 10.9 per cent in May. Manufacturing production was up an annual 10.6 per cent in June, compared with a provisional annual growth of 11.9 per cent in May.

On the other hand, the wholesale price index rose 4.45 per cent in the 12 months to July 28, higher than the previous week's 4.36 per cent due to increased food and manufactured product prices, official data showed.

The US Federal Reserve on Tuesday, left its benchmark interest rate unchanged at 5.25 per cent in a widely expected move and said while tightening credit conditions had increased downside risks to the us economy, inflation was still its main concern.

The Indian Government on Tuesday put stiff restrictions on overseas borrowings, a measure sought by the Reserve Bank of India (RBI) to enable it to check the rupee's sharp appreciation. External commercial borrowings (ECBs) above USD 20 million have now been allowed only for foreign currency expenditure for permissible end-uses and are required to be parked abroad. As a result, interest costs for companies might jump by 75-100 basis points as ECBs were usually at lower interest rates than domestic borrowings, experts observed and added that Indian companies had raised a total of USD 24 billion of ECBs in 2006-07 against the Government's internal target of USD 22 billion.

UNI